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Development Overview

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Overview of Korea’s development experience

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Development Overview
Territorial Development General

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General

Agrarian land reform

Land surveys and registration conducted by the colonial government in the 1910s established the first modern system of property rights in Korea and reduced land transaction costs significantly. But it was not accompanied by measures to protect small farmers, and led to a wide disparity in agricultural land holdings (Seok-gon Cho, 2001).

The Korean government responded to the increasing demand for agricultural land reform by enacting the Farmland Reform Act of 1949 and revising it in 1950. The reform was based on the principle of “compensated forfeiture and non-free distribution,” whereby the government bought farmland from landlords at forced prices and sold it to farmers at below-market rates.

The reform had many elements that ran counter to private property rights. The compensation to landlords was less than the market price, leading to big losses for the landlords (Yong-deok Jeon, 1997b).1) The Farmland Reform Act also banned farmland ownership by non-farmers, stipulated the maximum amount of landholdings per farmer, and prohibited tenant farming. Nevertheless, from the perspective of private property rights, “compensated forfeiture and non-free distribution” was a better option than “uncompensated forfeiture and free distribution” as espoused by left-wing groups and “compensated forfeiture and free distribution” by centrist groups. The most pressing task at the time was state-building, based on the support of farmers who constituted by far the largest part of the Korean population, even if this meant some infringements on the private property rights of landlords.

Agricultural land reform contributed not only to state-building, but also to redistributing wealth and reducing income inequalities. Everyone was now placed on a more or less equal footing, and individual effort and ability rather than family wealth became the most important determinant for individual success. Many believe that the Koreans’ characteristic diligence and their emphasis on education were motivated by this perception of equal opportunity. On the negative side, however, restrictions on farmland holdings hampered the growth of large-scale farming and contributed to the low productivity growth of the agricultural sector in later years.

Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.

NOTE


1)The forced prices were well below market prices. In addition, the delay in payments due to the war, combined with high inflation, significantly eroded the real value of “land compensation securities”that had been given to landlords in exchange for their lands.

References


· Cho, Seok-gon,“ Changes in the Korean Land System in the 20th Century and the Farmer-owner Ideology,”in Byeong-jik Ahn (ed.), The Korean Economic History: A Preliminary Study, Seoul National University Press, 2001, pp.329-364 (in Korean).
· Yong-deok Jeon, “Korea’s Farmland Reform, Income Redistribution, Agricultural Production and Transaction Costs,”in Yong-deok Jeon, Yeong-yong Kim and Ki-hwa Jeong, Growth of the Korean Economy and Institutional Changes, Korea Economic Research Institute, 1997b, pp.103-158 (in Korean).